China could wage economic war on Taiwan to force surrender, report says

WASHINGTON -- U.S. military officials and analysts have for years warned of possible armed attacks or blockades by China on Taiwan, but a report released Friday has raised a red flag about possible non-military tactics that could be used effectively against the self-governed island.

Beijing could wage an economic and cyber war to force a surrender from Taiwan without direct use of military power, the Foundation for Defense of Democracies, a Washington-based research institute, said in the report. Such a likely but overlooked scenario, it said, poses a challenge for the U.S., the island's biggest ally, and suggested Washington make preparations for how best to respond.

FDD researchers teamed up with banking and finance experts in Taiwan over two days earlier this year to simulate likely non-military moves by Beijing, such as disinformation campaigns and cyber attacks on infrastructure. The exercise was the first of its kind and seeks to fill an analytical gap, FDD said.

“Modern globalization has created more economic connections that China can exploit to achieve coercive aims," the report said. “Technological innovation created even more digital connections, offering more possibilities for coercion, including through the targeting of critical infrastructure.”

Beijing has vowed to take Taiwan, by force if necessary, although Chinese President Xi Jinping has promised to make “utmost efforts” to do so peacefully. Taiwan split from the mainland in 1949 during a civil war when the defeated nationalist government fled to the island.

Tensions have flared in the Taiwan Strait since 2016 when Beijing began to increase diplomatic and military pressure on the island, prompting the U.S. to step up its support. Washington, which is obligated under U.S. law to provide Taipei with sufficient military hardware for its defense, has argued that it is in the U.S. interest to keep peace in the strait and to stand with democracies such as Taiwan to maintain the rules-based world order.

Beijing has demanded the U.S. stay out of Taiwan, arguing it is a purely domestic affair.

President Joe Biden has indicated he would send troops to defend Taiwan in case of an armed attack from China, but the U.S. government has yet to formulate a plan to respond to non-military tactics, giving Beijing flexibility in working to undermine Taiwan without triggering an outright response from Washington that a military invasion would, the FDD researchers said.

Taiwan’s foreign and defense ministries had no immediate comment on the report.

With an estimated 1 million Taiwanese living and working in China, economic ties have grown ever closer. That has made the possibility of economic coercion, boycotts and military blockades an even bigger threat.

In the simulation exercises, the experts from the U.S. and Taiwan studied possible moves by Beijing such as conducting psychological wars to erode public trust, banning imports of Taiwanese products or raising tariffs on them, short-selling Taiwanese stocks, freezing bank transfers across the strait, cutting fiber optic cables, and targeting energy imports and storage.

Recommendations include that Taiwan diversify its energy imports, relocate businesses away from the mainland, develop new markets, and build alliances and partnerships. The report suggested that the United States develop a playbook of options to counter China and improve coordination with allies.

The Taiwan Academy of Banking and Finance, which worked with FDD on the simulation exercises, has argued that Taiwan must strengthen its financial resilience.

“China could destabilize Taiwan’s financial system to incite social unrest as a precursor to invasion,” the report said.

Russell Hsiao, executive director of the Washington-based Global Taiwan Institute, said Beijing has already been ramping up non-military measures against Taiwan and that such efforts are expected to intensify in the coming months and years.

“It behooves the United States and Taiwan to work with allies and like-minded partners to strengthen our collective resilience to China’s weaponization of economic interdependence,” Hsiao said.

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AP writers Fatima Hussein in Washington and Christopher Bodeen in Taipei contributed to this report.